2011-10-02

China on a collision course

Slowdown in reform efforts under attack
Wu Jinglian , 81, who has been advising the mainland's top leaders since the beginning of the market-oriented economic reform, also called for the breaking away from old ideologies and for the continued reform of state-owned enterprises.
Wu is a researcher with the Development Research Centre of the State Council and a member of the Chinese People's Political Consultative Conference's national committee, a top political advisory body of the government.
With more public figures chiming in on the reform issue, opinions have been fermenting in the run-up to the Communist Party's transition of power set for autumn next year, and the consensus is showing a rising dissatisfaction with the slow progress in recent years.
Even Premier Wen Jiabao , in his speech two weeks ago in Dalian at the annual World Economic Forum, called for a systematic political reform to put more restrictions on the Communist Party's use of power.
Wu noted that state-owned enterprises had been rapidly expanding their monopolistic power as a result of the administrative protection they received, as well as from the massive credit support from the state-owned banking system in recent years.
China has painted itself into a corner with its currency, credit and economic policies. The situation in Wenzhou is the tip of the iceberg. Private companies are taking massive risk because they have no access to capital. One part of the economy is coddled, riddled with bad debt and inefficient. The other is drawing blood from stone, overcoming crushing interest rates and managing to survive a difficult period in the global economy, only to finally succumb as Europe and the U.S. fall back into recession. There is a path forward, one of reform, and it is the only path that is littered with low-hanging fruit. Economic power must shift from the public to the private sector in the next great wave of reform. Chinese consumers and entrepreneurs receive the short-end of the stick in a system that favors state-owned companies and local governments, and this must change. I believe a major privatization wave is in front of us. It is something that I have been in favor of for a long-time because it is a great way to close the wealth gap and hand over more economic power to the people. If the Chinese government transfers its share of state-owned companies to the people, the poor will receive assets similar in value to their savings, while for the rich, it will be small change. If they do not transfer the assets directly, they may use them to fund a pension system for the country, among other possibilities. Either way, it can increase efficiency and send stocks rallying as former SOEs turn into privately run companies. The weak companies will die off and the private sector will see an explosion of profitability as credit flows to private business. All of this will put a strain on labor, which thanks to the one-child policy, is seeing the entry-level workforce population start to decline. In sum, a great combination to rapidly accelerate wage growth.

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